Spread Duration (Numerical)
Computes the spread duration of a bond by finite differences, repricing the instrument for an up and a down move in the credit spread: (V− − V+)/(2·V0·Δs). While duration measures sensitivity to changes in the risk-free rate, spread duration isolates sensitivity to the credit spread, the premium the market charges for issuer risk. It's essential for managing credit portfolios, where spread risk often dominates. Enter the base price, the prices with higher and lower spread and the spread change used.
Result
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Spread Duration (Numerical)
Computes the spread duration of a bond by finite differences, repricing the instrument for an up and a down move in the credit spread: (V− − V+)/(2·V0·Δs). While duration measures sensitivity to changes in the risk-free rate, spread duration isolates sensitivity to the credit spread, the premium the market charges for issuer risk. It's essential for managing credit portfolios, where spread risk often dominates. Enter the base price, the prices with higher and lower spread and the spread change used.
The risk ordinary duration ignores
Classic duration answers a question about the risk-free rate: if the treasury yield moves, how much does the bond swing? But a credit bond carries another embedded risk, the spread, the premium the market charges for the chance the issuer won't pay. Spread duration isolates exactly that sensitivity, separate from the move in base rates.
The calculation is numerical, by finite differences: reprice the bond with the spread slightly higher and slightly lower and measure the slope. For anyone managing a credit portfolio, it's the metric that matters most, because in corporate paper spread risk usually dominates rate risk. Two bonds with the same duration can react very differently to a credit scare.
Enter the base price, the price if the spread falls, the price if the spread rises and the spread change used on both sides. The tool returns the spread duration. As with any finite-difference calculation, use the same shock magnitude up and down, and prefer small shocks for a cleaner estimate.
Related Tools
G-Spread (Government Spread)
Computes the G-spread, the difference between a bond's yield and the yield of a government bond of comparable maturity. It's the most direct measure of a bond's credit risk premium: how much extra the market demands to lend to a corporate issuer instead of the treasury. The result comes in basis points, the standard unit of the credit market. Enter the bond's yield and the reference government bond's yield.
Effective Convexity (Numerical)
Computes the effective convexity of a bond by finite differences, repricing the instrument for an up and a down yield move: (V− + V+ − 2·V0)/(V0·Δy²). Unlike analytical convexity, the effective version works even for bonds with uncertain cash flows, such as those with embedded options, because it only needs the three prices. It complements duration to better estimate the price change in large rate moves. Enter the three prices and the yield change used.
I-Spread (Swap Spread)
Computes the I-spread, the difference between a bond's yield and the interpolated swap rate of the same maturity. It measures the bond's credit premium against the swap curve, which many consider a better reference than government bonds for pricing credit. The result comes in basis points. It's a cousin of the G-spread, but uses the swap rather than the government as the comparison base. Enter the bond's yield and the swap rate of the same maturity.
Box Spread (Arbitrage)
Computes the fair value and arbitrage of a box spread: combining a call spread and a put spread at the same strikes, creating a fixed payoff of (Kh − Kl) at expiry, equivalent to a riskless bond. The fair value is that payoff discounted: (Kh − Kl)·e^(−rT). If you set up the box for less than that, you lock in a risk-free profit. The tool returns the payoff, the fair value and the arbitrage against the cost you enter. Enter the two strikes, the rate, the term and the cost.
CDS Par Spread (Reduced-Form)
Computes the par (breakeven) spread of a Credit Default Swap in the reduced-form model with a constant hazard rate, setting the present value of the protection leg — which pays 1−R on default — equal to that of the premium leg. It shows the credit-triangle relationship s ≈ (1−R)·λ in practice. Enter the hazard rate, recovery rate, maturity, payment frequency and risk-free rate; the result is in basis points.
Z-spread (Zero-Volatility Spread)
Computes a bond's Z-spread: the constant spread added to the entire zero (spot) rate curve so the present value of its cashflows equals the market price. Unlike the nominal spread, which uses a single point, it accounts for the whole shape of the curve; for an option-free bond the Z-spread equals the OAS. Enter the cashflow times and amounts, the zero rate at each node and the price; the result is in basis points.
The results provided by this tool are for general informational and educational purposes only and do not constitute professional, financial, medical, legal, tax or accounting advice. Always confirm important decisions with a qualified professional and official sources.